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S&P 500 Enters New Bull Market: ETFs to Play

Sanghamitra Saha
·3-min read

The S&P 500 has entered a new bull market, and the indicators seem to support its continuity. From chances of easing interest rate hikes to increasing corporate earnings and a historical pattern favoring the bulls, the positive momentum appears set to stay.

Here, we explore the four key reasons driving the current bull run and identify the ETFs poised to outperform in this climate.

Will Fed Rate Hike Momentum Ease?

A recent surge in U.S. jobless claims indicates that the labor market may be cooling off, a situation that's proved a catalyst for tech stocks, which had been facing stiff headwinds from speculation about the Federal Reserve maintaining higher interest rates. This situation could potentially lead the Federal Reserve to reconsider its interest rate hiking momentum.

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Currently, markets are pricing in a 65% chance that the Federal Reserve will pause its rate hikes in the next Federal Open Market Committee meeting. With the Fed setting the price and the rest of the market taking it, this easing of interest rate hikes could likely fuel further upward momentum in the S&P 500.

Jump in S&P 500 Target Prices

Truist Co-Chief Investment Officer Keith Lerner Lerner beefed up his S&P 500 year-end "range" to 3,800-4,500 from a range of 3,400-4,300, as quoted on a Yahoo Finance article. A significant jump in the S&P 500 year-end target range from 3,400-4,300 to 3,800-4,500 indicates bullish sentiment.

Many analysts point out, earnings have performed better than feared, with Q1 earnings declining less than predicted and Q2 downward revisions trending below historical averages. Unless a tech sell-off occurs, the S&P 500 may move toward the high end of this range, supporting the bull market trend.

However, there are bear calls too. Despite several S&P 500 target boosts from renowned Wall Street analysts, Fundstrat's Head of Research Tom Lee points out only five of the 20 analysts he's tracking see upside from the S&P 500's current level near 4,300, per the same source.

AI Winning Momentum Is Here to Stay

BMO Capital Markets chief investment strategist Brian Belski believes that the AI boom “is real and likely to propel future growth for many stocks within the space," Belski wrote in a note "despite an extremely strong (year-to-date) sector performance, we believe the momentum, even if it slows a bit, is likely persist for the foreseeable future," as quoted on Yahoo Finance.

AI valuations are not super-stretched yet, per some analysts. Most recently, analysts at UBS wrote in a note to clients that the Amazon AMZN 's AI initiatives could substantially increase Amazon Web Services revenue by the fourth quarter of this year.

Historical Bull Market Pattern

History is on the side of the bulls. Historically, bull markets tend to sustain their momentum. Following a 20% rally from their lowest point, the S&P 500 has traditionally seen an average 10% return in the subsequent six months, and a 17.7% increase over the next year. If the S&P 500 continues to tick higher, we should expect higher returns in the second half of 2023.

ETFs in Focus

Against this upbeat backdrop, if you have faith in the potential market breadth of Wall Street, investors may track S&P 500 ETFs like Vanguard S&P 500 ETF VOO, iShares Core S&P 500 ETF IVV and SPDR S&P 500 ETF Trust SPY.

Investors can also play the growth part of the index with SPDR Portfolio S&P 500 Growth ETF SPYG and the value part of the index with SPDR Portfolio S&P 500 Value ETF SPYV. SPDR Portfolio S&P 500 High Dividend ETF Fund SPYD is a good bet for the dividend plays of the index.

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SPDR S&P 500 ETF (SPY): ETF Research Reports

Vanguard S&P 500 ETF (VOO): ETF Research Reports

SPDR Portfolio S&P 500 High Dividend ETF (SPYD): ETF Research Reports

iShares Core S&P 500 ETF (IVV): ETF Research Reports

SPDR Portfolio S&P 500 Growth ETF (SPYG): ETF Research Reports

SPDR Portfolio S&P 500 Value ETF (SPYV): ETF Research Reports

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Zacks Investment Research